Can green investment funds hedge climate risk?

Nadia Arfaoui; Muhammad Abubakr Naeem; Teja Maherzi; Umar Nawaz Kayani

doi:10.1016/j.frl.2023.104961

Can green investment funds hedge climate risk?

Nadia Arfaoui, Muhammad Abubakr Naeem, Teja Maherzi, Umar Nawaz Kayani

Economics and Finance - (CBE)

Research output: Contribution to journal › Article › peer-review

36 Citations (Scopus)

Abstract

We analyze tail risk dependence between Green Investment Funds (GIFs) and climate risks, emphasizing diversification benefits, safe-haven, and hedge features from 2009 to 2022. Our methodology, using AGDCC-GARCH, time-varying optimal copula (TVOC), and conditional diversification benefits (CDB), reveal various tail dependence regimes, showcasing the role of GIFs in extreme climate events. Symmetrical co-movement, observed during COVID-19 and Russia-Ukraine war, indicates no asymmetric tail dependence. Notably, GIFs offer substantial diversification benefits against climate risks, providing insights for investors and policymakers to formulate proactive strategies in line with sustainability goals.

Original language	English
Article number	104961
Journal	Finance Research Letters
Volume	60
DOIs	https://doi.org/10.1016/j.frl.2023.104961
Publication status	Published - Feb 2024

Keywords

Climate physical risk
Climate transition risk
Green Investment Funds
TVOC

ASJC Scopus subject areas

Finance

UN SDGs

This output contributes to the following UN Sustainable Development Goals (SDGs)

Access to Document

10.1016/j.frl.2023.104961

Cite this

@article{9ed1ee05159b4f79ad16459389c128af,

title = "Can green investment funds hedge climate risk?",

abstract = "We analyze tail risk dependence between Green Investment Funds (GIFs) and climate risks, emphasizing diversification benefits, safe-haven, and hedge features from 2009 to 2022. Our methodology, using AGDCC-GARCH, time-varying optimal copula (TVOC), and conditional diversification benefits (CDB), reveal various tail dependence regimes, showcasing the role of GIFs in extreme climate events. Symmetrical co-movement, observed during COVID-19 and Russia-Ukraine war, indicates no asymmetric tail dependence. Notably, GIFs offer substantial diversification benefits against climate risks, providing insights for investors and policymakers to formulate proactive strategies in line with sustainability goals.",

keywords = "Climate physical risk, Climate transition risk, Green Investment Funds, TVOC",

author = "Nadia Arfaoui and Naeem, \{Muhammad Abubakr\} and Teja Maherzi and Kayani, \{Umar Nawaz\}",

note = "Publisher Copyright: {\textcopyright} 2023 Elsevier Inc.",

year = "2024",

month = feb,

doi = "10.1016/j.frl.2023.104961",

language = "English",

volume = "60",

journal = "Finance Research Letters",